Thirteen years after mining the first Bitcoin block, crypto asset adoption continues to grow. Currently, an estimated 10.2% of the world’s population owns digital assets.
Many people who were attracted by rising prices and entered the market in 2020 and 2021 have stayed in this asset class despite the declines, showing optimism in this market. Institutional investors, including large ones, are also increasing cryptocurrency allocation.
An EY-Parthenon survey of more than 250 institutions, published in May 2023, found that institutional investors are “remaining on track and not moving away from crypto/digital assets, but approaching their investments cautiously with polite and moderate optimism. . The vast majority of institutions believe in the long-term benefits of crypto/digital assets.”
The biggest source of concern, according to the survey, is still regulatory uncertainty and the safety and reliability of exchanges.
Latin America is one of the regions with the greatest interest in cryptocurrencies
Institutions see value in the ability to diversify assets, as well as the potential for asymmetric returns when investing in crypto/digital assets. Thirty-five percent of respondents noted that they allocate anywhere from 1% to 5% to digital assets and/or related products, with 60% of respondents indicating that they allocate more than 1% of their portfolio to digital assets and/or related products related products .
While respondents with less assets under management (AUM)/assets under management (AUA) tended to allocate a higher proportion of their portfolio to these products, 45% of institutions with more than $500 billion in assets under management responded that more than 1% of their portfolio, indicating a large amount of capital invested in the space by traditional institutional investors.
Latin America strongly joined this wave. According to Chainalysis’ Geografia das Cryptocurrencies 2022 report, Latin America is the seventh largest cryptocurrency market in the world.
Between July 2021 and June 2022, Latin Americans purchased approximately $562 billion worth of cryptocurrencies, up 40% from the previous year. Of the top thirty countries in the cryptocurrency index, five are in Latin America, including Brazil at number 7.
Positive outlook attracts institutions, says Binance survey of VIPs
Research from EY-Parthernon shows that what attracts investors most to crypto assets is the opportunity to diversify their portfolios and the potential for asymmetric returns when investing in crypto/digital assets.
Of approximately 250 respondents, 35% said they allocate between 1% and 5% to digital assets or related products – and 60% said they allocate more than 1% of their portfolio to digital assets and/or related products. “While respondents with less assets under management or administration tended to allocate a greater portion of their portfolio to these products, it was striking that 45% of institutions with more than $500 billion responded that they have more than 1% of their portfolio. large amount of capital invested in the space by traditional institutional investors”.
This global interest is also evident among those who invest the most resources in this type of asset within Binance, the world’s largest cryptocurrency exchange by trading volume and number of tokens listed.
According to the Institutional Crypto Asset Outlook Survey, 63.5% of Binance VIP and Institutional users have a positive outlook on crypto assets for the next 12 months. About 88% of them foresee positive market developments in the coming decade. The Binance survey polled 208 VIP and institutional users around the world between March 31 and May 15 this year.
Diversification and returns
Binance’s survey of institutional and VIP investors shows that their perception of Bitcoin and cryptocurrencies has remained stable over the past year (44.7% and 47.8% respectively), while a higher proportion of respondents have become more positive towards of Bitcoin compared to other cryptocurrencies (47.3% vs 33.2%).
Investing in crypto assets can offer interesting benefits to mutual funds, family offices, and high net worth individuals (HNWIs). Between them:
1. Diversification: crypto assets exhibit unique market dynamics and correlations compared to traditional asset classes such as stocks, bonds, and commodities. This allows institutional investors to better diversify their portfolios, reduce overall risk and improve long-term returns.
2. High Efficiency Potential: in recent years, cryptocurrencies have provided significantly higher potential returns compared to traditional investments. While past performance is no indication of future results, the high growth potential of the cryptocurrency market remains an attractive proposition for investment funds, especially those with a higher risk tolerance.
3. Market Inefficiencies: the cryptocurrency market is still relatively new and less efficient compared to traditional markets, which can provide opportunities for institutions with business savvy and sophisticated algorithms to take advantage of short-term price changes and arbitrage opportunities.
4. Exposure to Emerging Technologies: cryptoassets are based on innovative and disruptive technologies such as blockchain, decentralization and smart contracts. Institutional investors can gain exposure to these advanced technologies by investing in cryptocurrencies, preparing to shape the future of the financial landscape.
5. Advantage of Early Adoption: As the adoption of cryptocurrencies and blockchain technology is still in its early stages, institutional investors entering the market now can benefit from increased market share and greater mass adoption in the coming years.
6. Greater Liquidity: The cryptocurrency market operates 24 hours a day, 7 days a week, providing investors with continuous liquidity and quick reaction to market movements or events. This is in contrast to traditional markets, where trading stops after hours or on weekends.
7. Programmatic Investing in Cryptocurrencies: Cryptocurrency-based investment vehicles such as decentralized finance platforms (DeFi) and tokenized assets offer unique investment strategies that were previously not possible with traditional investments.
8. Asset Tokenization and Fractionation: Blockchain technology is driving the tokenization of traditional assets such as real estate, art, and commodities, making them more accessible and facilitating shared ownership. Institutional investors can take advantage of this new market offering to expand their portfolios and take advantage of these new investment opportunities.
These benefits may explain why, according to the aforementioned Binance research report, 47.1% of investors held on to their institutional cryptocurrency portfolios and more than a third (35.6%) increased their holdings over the same period.
Most respondents expect to increase (50%) or maintain (45.7%) their institutional portfolios over the next 12 months. Only 4.3% of investors said they expect to reduce their exposure to cryptocurrencies.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
